Car Loan Interest Deduction
For 2025 through 2028, you can deduct up to $10,000 a year of interest on a loan for a new personal vehicle whose final assembly happened in the United States. A household paying $4,500 of interest in the 22% bracket keeps about $990 a year.
Reviewed by Ebot Mbi, CPA, EA · Last reviewed October 9, 2026
Who it fits
- Buyers of a new car, SUV, pickup, van, or motorcycle assembled in the U.S.
- Households with modified AGI under $100,000 single or $200,000 joint
- Buyers financing rather than paying cash or leasing
- Taxpayers who take the standard deduction, since itemizing is not required
Who it's not for
- Leases and used vehicles; the vehicle must be new and purchased
- Vehicles assembled outside the U.S., even from domestic brands
- Vehicles used in your business, where interest is a business expense under separate rules
How it works
The loan must be originated after December 31, 2024, be secured by the vehicle, and be used to buy it. A later refinance of a qualifying loan generally continues to qualify up to the refinanced balance.
The vehicle must be new (its original use starts with you), weigh under 14,000 pounds, and have its final assembly in the United States. The window sticker or the National Highway Traffic Safety Administration VIN lookup shows the assembly plant.
You report the vehicle identification number on your return. Lenders report the interest paid to you and the IRS each year.
The deduction is capped at $10,000 a year and is reduced by $200 for every $1,000 of modified AGI above $100,000 single or $200,000 joint. It is allowed whether or not you itemize.
Personal use is required. If the vehicle is also used for business, the business share of interest belongs on the business return, not here. You cannot deduct the same dollar twice.
Illustrative example
Illustrative: a married couple with $160,000 of modified AGI buys a new U.S.-assembled pickup in 2026 for personal use, financing $60,000. The lender's year-end statement shows $4,500 of interest. Their top bracket is 22%.
- Interest paid in 2026: $4,500
- Cap check: $4,500 is under the $10,000 annual cap
- Phase-out check: $160,000 is under the $200,000 joint threshold, so no reduction
- Deduction allowed: $4,500
- Tax saved at 22%: $4,500 × 22% = $990
The couple keeps about $990 in federal income tax for 2026, with a smaller benefit each year as the loan balance and interest decline.
The rules
| Rule | Citation |
|---|---|
| Interest on a loan to buy a new, U.S.-assembled personal vehicle is deductible up to $10,000 a year for 2025 through 2028. | IRC §163(h)(4) (added by P.L. 119-21) |
| The loan must originate after December 31, 2024, and be secured by the vehicle. | IRC §163(h)(4) |
| The deduction phases out above $100,000 ($200,000 joint) of modified AGI. | IRC §163(h)(4) |
| The deduction is allowed whether or not you itemize. | IRC §63(b) |
Watch-outs
- Final assembly location is the test, not the brand. Confirm the plant before you buy if the deduction matters to the decision.
- Rolling negative equity or add-ons into the loan can make part of the interest ineligible.
- Loans from family members or other related parties do not qualify.
- The deduction expires after 2028; do not choose a longer, costlier loan just to chase it.
What we do
We confirm the vehicle and loan qualify, apply the cap and phase-out, and keep personal and business use of the vehicle separate so nothing is deducted twice. If you are deciding between buying personally or through your business, we run both sets of numbers.
Questions
Does a lease count?
No. Lease payments are not loan interest, so they do not qualify for this deduction.
I bought my car in 2024. Can I deduct the interest now?
No. The loan must be originated after December 31, 2024.
Is $10,000 per vehicle or per return?
Per return. The cap is $10,000 a year in total, even if you finance more than one qualifying vehicle.